As per a newly introduced section in the Income-Tax Act,1961,(IT Act),a tax at the rate of 1% will be deducted on transfer of immovable property of R50 lakh and above. These changes are effective from June 1,2013,and immovable property will include land (other than agricultural land). It will also include any building or part of a building.

The earlier provisions of the income tax Act didnt require buyers of immovable property to deduct tax before making any payment to a resident. A significant number of real estate transactions either remained under reported or unreported. Even if they were reported,PAN was not mentioned or incorrect PAN was mentioned. The latest change has been introduced to track such property transactions and promote proper reporting.

Section 194IA of the IT Act provides that any person,responsible for paying to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land),shall,at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode,whichever is earlier,deduct an amount equal to 1% of such sum. Further it also mentions that no deduction is required if the consideration is less than R50 lakh.

A buyer will be required to deduct tax from the payment and deposit it. The buyer would be required to obtain the PAN of the seller,deposit TDS with the government and file a challan-cum-statement in Form No 26QB. A seller on the other hand will get a reduced amount from the actual sale consideration,which he had never anticipated.

Buyers will be required to issue a TDS certificate in Form 16B within 15 days to the seller. Form 16B can be downloaded from the website of the tax authorities. TDS credit would also be reflected in Form 26AS of the seller for claiming credit while filing the income tax return. It is important to note that in the absence of PAN,TDS up to 20% may be required to be deducted instead of 1%,subject to certain conditions.

While the above changes may have some initial hiccups for buyers and sellers,it will ensure that there is proper tracking and reporting of property transactions,and thereby,unearth black money,which is in the interest of the nation.